SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
For Quarter Ended Commission File Number
July 2, 1995 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 293-7511
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 10, 1995: 5,204,254
Page 1 of 12
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months and Six
Months ended July 2, 1995, and July 3, 1994 3
Condensed Consolidated Balance Sheets -
As of July 2, 1995, and December 31, 1994 4
Condensed Consolidated Statements of Cash
Flows - For the Six Months Ended July 2,
1995, and July 3, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 12
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $76,413 $70,618 $152,391 $134,975
Costs and expenses:
Cost of goods sold 57,265 53,466 115,970 102,226
Selling, general and
administrative expenses 10,098 10,108 20,171 20,675
Research and development
expenses 2,027 1,519 4,350 2,989
Operating earnings 7,023 5,525 11,900 9,085
Other expenses (income):
Interest expense 439 189 926 416
Other (523) (220) (992) (444)
Total other expenses
(income) (84) (31) (66) (28)
Earnings before income
taxes 7,107 5,556 11,966 9,113
Income taxes 2,465 1,667 4,068 2,734
Net earnings $ 4,642 $ 3,889 $ 7,898 $ 6,379
Net earnings per share $ .89 $ .75 $ 1.52 $ 1.23
Cash dividends per share $ .15 $ .10 $ .30 $ .20
Average net shares
outstanding 5,202,746 5,169,970 5,194,811 5,164,930
See notes to condensed consolidated financial statements.
</TABLE>
Page 3 of 12
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION> July 2, December 31,
1995 1994*
ASSETS (Unaudited)
Current Assets
<S> <C> <C>
Cash $19,284 $ 24,922
Accounts receivable, less allowances
(1995--$1,048; 1994--$869) 45,720 35,029
Inventories--Note C 42,445 41,456
Other current assets 3,802 3,032
Deferred income taxes 6,228 6,228
Total current assets 117,479 110,667
Property, Plant and Equipment, less accumulated
depreciation (1995--$135,456; 1994--$139,649) 49,705 50,777
Other Assets
Goodwill, less accumulated amortization
(1995--$7,349; 1994--$7,010) 4,923 5,221
Prepaid pension 42,140 39,408
Other 692 753
Total other assets 47,755 45,382
$214,939 $206,826
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 5,533 $ 7,436
Current maturities of long-term obligations 108 304
Accounts payable 16,056 12,768
Accrued liabilities 25,076 24,284
Total current liabilities 46,773 44,792
Long-term Obligations 15,606 15,595
Deferred Income Taxes 9,222 9,222
Postretirement Benefits 4,436 5,362
Stockholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,526 33,870
Retained earnings 118,844 112,506
Cumulative foreign translation adjustment (63) (354)
152,307 146,022
Less cost of common stock held in treasury:
1995--603,077 shares; 1994--628,427 shares 13,405 14,167
Total stockholders' equity 138,902 131,855
$214,939 $206,826
*The balance sheet at December 31, 1994, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
</TABLE>
Page 4 of 12
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
<TABLE>
<CAPTION> Six Months Ended
July 2, July 3,
1995 1994
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 7,898 $ 6,379
Depreciation and amortization 6,283 5,946
(Increase) decrease in:
Accounts receivable (10,691) (7,973)
Inventories (989) (3,586)
Other current assets (770) (740)
Prepaid pension expense (2,732) (2,862)
Other (816) 21
Increase in:
Accounts payable and accrued liabilities 4,075 9,460
Total adjustments (5,640) 266
Net cash provided by operating activities 2,258 6,645
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 356 543
Capital expenditures (4,989) (5,815)
Net cash used in investing activities (4,633) (5,272)
Cash flows from financing activities:
Payments of long-term obligations (197) (3,215)
Decrease in notes payable (1,903) (9,761)
Dividend payments (1,555) (1,034)
Net cash used in financing activities (3,655) (14,010)
Effect of exchange rate changes on cash 392 256
Net decrease in cash (5,638) (12,381)
Cash at beginning of year 24,922 23,534
Cash at end of period $19,284 $11,153
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest $ 901 $ 415
Income Taxes $ 2,787 $ 1,307
See notes to condensed consolidated financial statements.
</TABLE>
Page 5 of 12
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 2, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is
unaudited; however, in the opinion of management, the interim data
includes all adjustments considered necessary for a fair
presentation of the results for the interim period. Operating
results for the six-month period ended July 2, 1995, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1994 Annual Report on Form 10-K.
NOTE B--RECLASSIFICATIONS
Certain reclassifications have been made for all years presented in
the financial statements to conform to the classifications adopted
in 1995.
NOTE C--INVENTORIES
The components of inventory consist of the following:
(In thousands)
July 2, December 31,
1995 1994
Finished goods $ 7,078 $ 5,725
Work-in-process 16,505 16,531
Raw material 18,862 19,200
$42,445 $41,456
NOTE D--LITIGATION and CONTINGENCIES
Contested claims involving various matters, including environmental
claims brought by government agencies, are being litigated by CTS,
both in legal and administrative forums. In the opinion of
management, based upon currently available information, adequate
provision for potential costs has been made, or the costs which
might ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial
position of the Company or the results of operations.
Page 6 of 12
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of July 2,
1995, to December 31, 1994
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
July 2, December 31, Increase
1995 1994 (Decrease)
Cash $19,284 $ 24,922 (5,638)
Accounts receivable, net 45,720 35,029 10,691
Inventories, net 42,445 41,456 989
Current assets 117,479 110,667 6,812
Accounts payable 16,056 12,768 3,288
Current liabilities 46,773 44,792 1,981
Working capital 70,706 65,875 4,831
Current ratio 2.5 2.5 -
Interest bearing debt 21,231 23,318 (2,087)
Net tangible worth 133,979 126,634 7,345
Ratio of interest bearing debt
to net tangible worth .16 .18 (.02)
From December 31, 1994, to July 2, 1995, cash of CTS Corporation
and its subsidiaries ("CTS" or "Company") decreased $5.6 million.
The decrease in cash primarily reflects increased working capital
and a reduction in interest bearing debt. The change in working
capital, excluding cash and current debt, was an increase of $8.4
million. The $8.4 million primarily reflects increases in accounts
receivable of $10.7 million and inventory of $1.0 million, offset
by an increase in accounts payable of $3.3 million. These
increases are primarily a reflection of the increase in sales and
production levels during the second quarter of 1995, compared to
the last quarter of 1994.
Capital expenditures were $5.0 million during the first six months
of 1995, compared with $5.8 million for the same period a year
earlier. These capital expenditures were primarily for new
products and manufacturing improvement programs.
The $2.1 million decrease in interest bearing debt resulted
primarily from discretionary debt repayments.
Page 7 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of Second
Quarter 1995 to Second Quarter 1994
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending July 2, 1995, and July 3, 1994:
(Dollars in thousands)
July 2, July 3, Increase
1995 1994 (Decrease)
Net sales $76,413 $70,618 $5,795
Gross earnings 17,121 15,633 1,488
Gross earnings as a percent
of sales 22.41% 22.14% .27%
Selling, general and
administrative expenses 10,098 10,108 (10)
Selling, general and
administrative expenses as
a percent of sales 13.22% 14.31% (1.09%)
Research and development
expenses 2,027 1,519 508
Operating earnings 7,023 5,525 1,498
Operating earnings as a
percent of sales 9.19% 7.82% 1.37%
Interest expense 439 189 250
Earnings before income taxes 7,107 5,556 1,551
Income taxes 2,465 1,667 798
Income tax rate 35.00% 30.00% 5.00%
Net sales increased by $5.8 million, or 8.2% compared to the second
quarter of 1994, generally as a result of the continued demand for
electronic components. In addition, 1995 sales include the Light
Emitting Diode (LED) based Fiber Optic Data Link (ODL) products,
which were acquired in late 1994.
Gross earnings improved primarily due to the sales and production
volume increases, as well as continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses remained relatively
flat with a minor increase in selling expense, specifically
commissions, as a result of the increased sales volume. As a
percent of sales, these expenses declined slightly, reflecting the
Company's continued emphasis of cost control over all operating
expenses.
Page 8 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Research and development expenses increased by $0.5 million,
primarily due to the continuation of new product development
programs, particularly in the automotive and resistor networks
product areas.
The increase in interest expense, similar to the first quarter, is
related to the $15 million term loan to finance acquisitions at a
fixed interest rate of approximately 8.4%, in December 1994.
The tax rate for the second quarter of 1995 is five percentage
points higher than the second quarter 1994 tax rate and is
consistent with the 1994 full-year annual effective rate of 35.0%.
This primarily results from increased losses in Singapore with no
corresponding tax benefits, combined with increased income in
Canada and the United Kingdom with relatively high tax rates.
Material Changes in Results of Operations: Comparison of First
Half of 1995 to First Half of 1994
The following table highlights changes in significant components of
the consolidated statements of earnings for the six-month periods
ending July 2, 1995, and July 3, 1994:
(Dollars in thousands)
July 2, July 3, Increase
1995 1994 (Decrease)
Net sales $152,391 $134,975 $17,416
Gross earnings 32,071 29,760 2,311
Gross earnings as a percent
of sales 21.05% 22.05% (1.00)%
Selling, general and
administrative expenses 20,171 20,675 (504)
Selling, general and
administrative expenses as
a percent of sales 13.24% 15.32% (2.08)%
Research and development
expenses 4,350 2,989 1,361
Operating earnings 11,900 9,085 2,815
Operating earnings as a
percent of sales 7.81% 6.73% 1.08%
Interest expense 926 416 510
Earnings before income taxes 11,966 9,113 2,853
Income taxes 4,068 2,734 1,334
Income tax rate 34.00% 30.00% 4.00%
Page 9 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
For the first half of 1995, net sales increased $17.4 million, or
a 12.9% increase compared to the first half of 1994. Consistent
with the second quarter of 1995, overall improvement was realized
as a result of the continued demand for electronic components. In
addition, sales increased as a result of the late 1994 acquisition
of the Light Emitting Diode (LED) based Fiber Optic Data Link (ODL)
products.
Gross earnings have improved over the first half of 1994, primarily
as a result of the higher sales volume. Sales and production
volume increases have favorably affected operating efficiencies.
The first half earnings were unfavorably impacted by the $1.9
million lower of cost or market reserve established in the first
quarter for our military products relative to a fixed price
contract.
Selling, general and administrative expenses in dollars have
decreased for the first half of the year, reflecting continuing
efforts to control operating expenses.
Research and development expenses have increased by $1.4 million
during the first half of 1995, primarily due to the new product
development programs, particularly in automotive products.
Interest expense has increased by $0.5 million as a result of the
$15 million term loan finalized in December 1994.
The tax rate has increased from the 1994 June year-to-date
effective rate of 30.0% to 34.0%. This primarily results from
increased losses in Singapore with no corresponding tax benefits,
combined with increased income in Canada and the United Kingdom with
relatively high tax rates.
10 of 12
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
CTS is involved in litigation and in other administrative
proceedings with government agencies regarding the protection of
the environment, and other matters, the results of which are not
yet determinable. In the opinion of management, based upon
currently available information, adequate provision for anticipated
costs has been made, or the ultimate costs resulting from such
litigation or administrative proceedings will not materially affect
the consolidated financial position of the Company or the results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of CTS Corporation was held on
April 28, 1995.
Each of the five director-nominees identified below was re-elected
to a one-year term as director of the Corporation with the
following votes reported of the 4,173,854 eligible to vote at the
meeting:
Votes
Votes Cast Broker
Director-Nominee Cast For Against Abstentions Non-Votes
Lawrence J. Ciancia 4,002,917 5,864 15,000 60,107
Patrick J. Dorme 4,002,298 6,483 15,000 60,107
Gerald H. Frieling, Jr. 4,001,917 6,864 15,000 60,107
Andrew Lozyniak 4,001,143 7,638 15,000 60,107
Joseph P. Walker 4,001,717 7,064 15,000 60,107
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Forms 8-K
None
Page 11 of 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
/s/ Jeannine M. Davis /s/ Stanley J. Aris
Jeannine M. Davis Stanley J. Aris
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: August 10, 1995
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUL-2-1995
<CASH> 19,284
<SECURITIES> 0
<RECEIVABLES> 46,768
<ALLOWANCES> 1,048
<INVENTORY> 42,445
<CURRENT-ASSETS> 117,479
<PP&E> 185,161
<DEPRECIATION> 135,456
<TOTAL-ASSETS> 214,939
<CURRENT-LIABILITIES> 46,773
<BONDS> 0
<COMMON> 33,526
0
0
<OTHER-SE> 105,376
<TOTAL-LIABILITY-AND-EQUITY> 214,939
<SALES> 152,391
<TOTAL-REVENUES> 152,391
<CGS> 115,970
<TOTAL-COSTS> 140,491
<OTHER-EXPENSES> (992)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 926
<INCOME-PRETAX> 11,966
<INCOME-TAX> 4,068
<INCOME-CONTINUING> 7,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,898
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
